9-22 Absorption versus variable costing. Grunewald Company manufacturers a professional grade vacuum cleaner and began operations in 2011. For 2011, Grunewald budgeted to produce and sell 20,000 units. The company had no price, spending, or efficiency variances, and writes off production-volume variance to cost of goods sold. Actual data for 2011 are given as follows:

1Units produced 18,000

2 Units sold 17,500

3 Selling price $ 425

Variable costs:

Manufacturing cost per unit produced

Direct materials $ 30

Direct manufacturing labor 25

Manufacturing overhead 60

Marketing cost per unit sold 45

Fixed costs:

Manufacturing costs $1,100,000

Administrative costs 965,450

Marketing 1,366,400

1. Prepare a 2011 income statement for Grunewald Company using variable costing.

2. Prepare a 2011income statement for Grunewald Company using absorption costing.

3. Explain the differences in operating incomes obtained inrequirement 1 and requirement 2.

4. Grunewalds management is considering implementing a bonus for the supervisors based on gross margin under absorption costing. What incentives will this create for the supervisors? What modifica- tions could Grunewald management make to improve such a plan? Explain briefly.